July, 2005
Feature
Ethic Opinion
Issued by the Professional Ethics Committee for the State
Bar of
OPINION NO. 556
MAY 2005
Copyright © 2005 by State Bar of
QUESTION PRESENTED: May a law firm provide
client information to employees of a collection agency who act as borrowed
employees of the law firm in assisting it in collection of past due
receivables?
Statement
of Facts
A law firm proposes to retain an
independently owned and operated collection agency to assist the law firm in
collecting receivables from clients for whom the firm has provided legal
services. The collection agency employees involved in collection work for the law firm will remain
on the payroll of the collection agency. Each employee will sign an agreement
that the employee will work for the law firm as a borrowed employee, and the
law firm will direct the manner and all details of the employees' work. The law
firm will compensate the collection agency, and not the borrowed employees, for
the employees' services. The law firm will retain ownership of the accounts
receivable.
Discussion
Rule 1.05(b)
of the Texas Disciplinary Rules of Professional Conduct provides:
Except as permitted by paragraphs (c) and
(d), or as required by paragraphs (e), and (f), a lawyer shall not knowingly:
(1) Reveal confidential information
of a client or a former client to:
(i) a person that the client has instructed is not to receive
the information; or
(ii) anyone
else, other than the client, the client's representatives, or the members,
associates, or employees of the lawyer's law firm.
(2) Use confidential information of
a client to the disadvantage of the client unless the client consents after
consultations.
(3) Use confidential information of
a former client to the disadvantage of the former client after the
representation is concluded unless the former
client consents after consultation or the confidential information has become
generally known.
(4) Use privileged information of a
client for the advantage of the lawyer or of a third person, unless the client
consents after consultation.
This committee has addressed in two prior
opinions the application of Rule 1.05
with respect to a law firm's attempts to use outside parties to collect fees
from clients. See Professional Ethics Committee Opinion 495 (March 1994) and
Opinion 464 (August 1989).
Opinion 495 considered a law firm's use of a
collection agency to collect accounts receivable that continued to be owned by
the law firm. The opinion concludes that, if the client does not give effective
consent, none of the exceptions set forth in Rule 1.05(b)
would apply to permit or require a law firm to disclose confidential client
information to a collection agency in order to assist the collection agency in
collecting amounts due to the law firm.
Opinion 464 dealt with a proposed sale of a
law firm's accounts receivable to a factoring company. The committee concluded
that the sale of a law firm's accounts receivable necessarily entails
disclosure of confidential client information and is not permitted "unless
each client involved has previously given consent, after consultation with the
lawyer, to the disclosure of confidential information incident to such sale of
accounts receivable."
In the arrangement addressed by this opinion, persons normally employed
by the collection agency would be designated "borrowed employees" of
the law firm. This designation would not change the fact that such employees
are not regular employees of the law firm but instead are employees of the
collection agency to which the rules of professional conduct do not apply.
Without the safeguards inherent in a law firm environment and the ability to
discipline which is a part of the standard employer/employee relationship, a
law firm may compromise the requirement and the expectation of confidentiality
imposed by Rule 1.05.
Hence, the permission granted in Rule
1.05(c)(3) for a lawyer to share client information with "the
members, associates, and employees of the lawyer's firm, except when otherwise
instructed by the client" should not be interpreted to include revealing
confidential client information to employees of a collection agency who are
temporarily borrowed by the law firm to collect fees.
No other provision of paragraphs (c), (d),
(e), and (f) of Rule 1.05
would permit or require a lawyer to reveal confidential information in the
circumstances here considered except when the affected clients give informed
consent within the scope of Rule
1.05(c)(2), which permits a lawyer to reveal confidential
information "[w]hen the client consents after consultation."
The protection of confidential client
information is at the heart of Rule
1.05
and Opinions 495 and 464. The protection afforded by Rule 1.05
would be compromised by the use of collection agency employees to work as
borrowed employees of the law firm for collection work. Accordingly, absent
prior informed consent of each affected client, a lawyer may not reveal
confidential client information to collection agency employees even though
these employees are designated as borrowed employees of the law firm.
Conclusion
It is not permissible under the Texas
Disciplinary Rules of Professional Conduct for a law firm, without the prior
consent of each affected client, to provide confidential client information to
employees of a collection agency who are treated as borrowed employees of the
law firm while assisting the law firm in collection matters.